Is leveraged trading driving bitcoin prices?


Investors are now wondering what is going on with Bitcoin’s price craziness, as the price chart already looks like the infamous “hockey stick”, and experts are grasping to find the reasons why the digital currency is now hitting the $17,000 level every day.

The answer may be leverage. The Japanese exchange, bitFlyer, said that their investors are now going “crazy” over bitcoin, with leverage increased up to 15 times, as reported by Financial Times.

What is more, the complexity of the trading strategy of investors and their appetite for bitcoin and high leverage was handled by the exchange, which, in the words of the CEO, Yuzo Kano, had enough liquidity to do so and allow for the highly leveraged type of trading that occurred. The typical profile of the traders on BitFlyer are retail investors aged 20 to 50 years old on average.

Thus, Mr. Kano expressed his opinion that the high liquidity of the Japanese market will be enough for the exchange to enter the US market. BitFlyer has already won authorisation to operate in the US.

FT reported the words of Mr. Kano:

“There are lots of traders but some buy-and-hold investors. Actually, they are buy-and-buy. The scale of deposits is steadily increasing. It’s pretty large. We don’t take any risk. The trading is between our customers.” 

Looking at the distribution of $1 in trading, 25% of it goes to trading bitcoin and 75% to derivatives. Interestingly, BitFlyer automatically closes client positions when they lose half their initial margin. For example, a customer who used ¥10,000 to buy ¥150,000 of bitcoin would be forced to sell if its value fell to ¥145,000, a drop of slightly more than 3 per cent, as reported by Robin Harding of Financial Times.

In regards to the importance of leverage, RoboForex, the Limassol based Retail FX brokerage group, just increased cryptocurrency trading leverage to 10x. With the hype that continues to increase, the high volatility of the crypto market has only fuelled financial brokers and exchanges to increase leverage and give investors to opportunity to take advantage of “borrowing” to bet on bitcoin.

In relation to the bitcoin frenzy, Coinbase and other major exchanges continue to crash and are currently unable to meet the demand for Bitcoin, Ethereum and even Litecoin. Of course, it is very important for brokers and exchanges to offer the best possible experience for investors in terms of simplicity of platform, variety of trading options etc. It seems that leverage and the stretch of its boundaries are now one of the major factors that draw investors in.

Bitcoin is currently trading at $17,430, which is another all-time high for the digital currency this week. With CBOE and CME in the bitcoin futures game, and the massive interest from investors towards bitcoin, high leverage is essential for the success of exchanges.

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Is leveraged trading driving bitcoin prices?

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